An off the plan contract is an agreement to sell land, apartments or other property before the plan of subdivision has registered and, sometimes, before construction has been completed. Buyers enter into these with the promise of lower costs for a property, while it allows vendors to lock in a buyer early in the process.
As a vendor, you won’t get your money until the plan of subdivision registers and the contract settles.
So you need to be aware of the time and money it takes to get it to register. This includes understanding the subdivision timeframes for the particular Council and authorities, and the types of requirements you might need to meet before Council will issue a statement of compliance, such as new drainage systems, new electricity connection to the new lot, a new fence, the cost to connect water and sewerage to the new block and installation of any crossovers.
That’s just for the subdivision. If your OTP contract also doesn’t allow you to settle until the occupancy permit has issued, you add even more unknowns of cost and time into the process.
As conveyancing lawyers, our main role in an OTP sale is (a) preparing the contract and (b) lodging the plan of subdivision and doing the conveyancing for the settlement of the contract. We don’t usually get involved until the planning permits for the subdivision and any development have been issued.
There are strict requirements for what goes into an off the plan contract and the law on this regularly changes. Make sure you use a conveyancing lawyer who regularly deals with these types of developments.
The contract will include the proposed plan of subdivision and proposed specifications, and you will give you a little bit of wriggle room with these. It will also set out how any defects will be fixed, and will include a sunset date by which if the plan isn’t registered, the parties can bring the contract to an end. Depending on the scale of the development, you might also want clauses in there that allow you as developer to pull the plug for other reasons, such as onerous requirements by the Council.
As a developer selling ‘off the plan’, please remember you can’t access the deposit paid by the purchaser until the plan has registered. Make sure you have the cashflow to be able to finish the build and meet any of the authorities’ requirements for the subdivision.
You also need to keep in communication with your bank, as we want to be able to lodge the plan of subdivision as soon as the statement of compliance has been issued by Council. This means starting the conversation with your bank prior to that point about what internal requirements it might have to make the title available for the plan to be lodged. This might include valuations of the new lots or any security property before they consent. Again, start talking to them before you need them.
In short, when selling off the plan, be aware of the unknowns with time and cost, make sure your contract is watertight, and talk to your bank early!